Re: [Marxism] Mortgage Company Exec Jumps to Death

[Steve Palmer <spalmer999@xxxxxxxxx>]

But this is hardly the root cause, any more than that the problem is just
subprime loans. This kind of stuff just greases the skids and helps it on its
way. If we didn't have per deal fees (money-lenders ALWAYS take a cut and have
an incentive to make a loan rather than not) and didn't have subprime, we'd
still have a problem, or rather, the capitalists would. With the underlying
decline in profitability, credit is expanded to sustain the economy and
guarantee profits. It becomes increasingly speculative, since the underlying
real profits are no longer there. Now the bond insurers are getting whacked -
and so will the bonds they insure. No longer AAA, investors with prime grade
portfolios will be forced to sell them, pushing prices down, with further write
downs and unravelling elsewhere. How long this is going to go on and how far it
is going to spread is impossible to tell ... but we're still in the foothills,
since the subprimes are continuing to reset for quite a while. It's interesting
to note that part of Citibank's write downs this week were for distressed
credit card and auto debt.

So, best wear a hard hat on the way to work and keep an eye open for further
plunging brokers ...

Steve


--- Les Schaffer <schaffer@xxxxxxxxxxxxx> wrote:

> the exception rather than the rule. an economist friend forwarded this 
> article to me yesterday...
> 
> les
> 
> 
> 
> Deal Fees Under Fire
> Amid Mortgage Crisis
> Guaranteed Rewards
> Of Bankers, Middlemen
> Are in the Spotlight
> By LIAM PLEVEN and SUSANNE CRAIG
> January 17, 2008; Page A1
> 
> To understand a root cause of the financial crisis shaking global 
> markets, take a look at Kevin Schmidt's paycheck.
> 
> Mr. Schmidt arranges mortgages in Shreveport, La. He earns his money 
> upfront, taking a percentage of each loan once papers are signed. "We 
> don't get paid unless we can say YES" to loans, his firm's Web site says.
> 
> The problem, which Mr. Schmidt says he sees clearly: Brokers have little 
> incentive to say "no" to someone seeking a loan. If a borrower defaults 
> several months later -- as Americans increasingly are doing -- it's 
> someone else's problem.
> 
> At every level of the financial system, key players -- from deal makers 
> on Wall Street and in the City of London to local brokers like Mr. 
> Schmidt -- often get a cut of what a transaction is supposed to be worth 
> when first structured, not what it actually delivers in the long term. 
> Now, as the bond market wobbles, takeover deals unravel and mortgages 
> sour, the situation is spurring a re-examination of how financiers get 
> paid and whether the incentives the pay structure creates need to be 
> modified. This week, Congress asked three prominent executives to 
> testify about their pay packages.
> 
> Upfront commissions and fees are well established on Wall Street. 
> Investment banks get paid when billion-dollar mergers are inked. Firms 
> that create complex new securities are paid a percentage off the top. 
> Rating services assess the risk of a new bond in return for fees on the 
> front end.
> 
> Critics argue this system can give people a vested interest in closing a 
> deal, regardless of whether it turns out to be a good idea over time.
> 
> full article at 
>
http://www.realestatejournal.com/buysell/mortgages/20080118-pleven.html?mod=RSS_Real_Estate_Journal&rejrss=frontpage
> 
> 
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"I study a lot. That is one of the responsibilities of every revolutionary." 
Hugo Chavez.


      
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